Illegal ciggies cost Sars R7bn

Recently, several newspapers have run advertisements under the banner #takebackthetax, with slogans like “Petrol will be cheaper if we take back our R7 billion” and “VAT doesn’t have to increase if we take back our R7 billion”.

The R7 billion refers to annual tax avoidance by SA’s illicit and illegal tobacco product manufacturers and distributors, says the campaigner, Tobacco Institute of Southern Africa (Tisa).

“The legal industry must compete against an organised illicit cigarette industry that sells cigarettes for as little as R10 per packet, although the minimum tax payable per packet of 20 amounts to R17.85,” says Tisa CEO Francois van der Merwe.

In 2015, an Eastern Cape High Court judgment found that tobacco products selling for prices less than the minimum collectable tax must be illegal.

In total, brands selling for less than the payable tax have gained a share of nearly 27% of SA’s total cigarette market.

Tisa calculates that tax avoidance will cost Treasury around R7 billion in lost revenue in the current financial year and nearly R30 billion since 2015, when the South African Revenue Service (Sars) stopped policing dubious manufacturers.

Sars acknowledges the problems and associated dangers of illicit cigarettes.

A policy statement on Sars’ website states: “A large number of illicit cigarettes are consumed in South Africa every year. That means we lose in excise revenue every year. That sort of revenue would build quite a few more schools, roads and houses.”

A new Sars compliance programme in 2013 listed the illicit cigarette industry as one of the big tax avoidance problem areas.

Unfortunately, soon after Sars enforced plans for stricter enforcement against a number of transgressors, finance minister Pravin Gordhan was replaced and senior Sars personnel were moved aside.

In one of several parliamentary investigations into the mismanagement of government institutions and enterprises, Sars former chief enforcement officer Gene Ravele testified that cigarette manufacturers haven’t been inspected since at least 2015.

A recent Ipsos report found that a suspicious brand has grown to be SA’s second biggest cigarette brand: RG, a Gold Leaf Tobacco Brand selling for on average just over R10 per packet.